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Ex-Barclays Quants Move to Old House by Sea to Try to Do Good

(Bloomberg) -- By the time he turned 43, Yasuyuki Kamata had become so disillusioned by two periods of speculative greed in financial markets -- the dot.com bubble and the years before the global financial crisis -- that he wondered if anyone cared about anything beyond the bottom line.

"The industry was increasingly focused only on profit,” says the former money manager for Barclays Global Investors, which is now part of BlackRock Inc., referring to finance in general. "I figured it was time to leave."

Kamata gave up an almost two-decade career at established financial firms to try to use his investing skills to “contribute to society.” He rounded up a handful of former colleagues and founded an asset management company that would do things differently.

Instead of setting up in a Tokyo skyscraper, they opted for the small seaside town of Kamakura, about 50 kilometers (31 miles) southwest of the city, and once -- about 800 years ago -- Japan’s capital itself. There, they rented a 90-year-old traditional Japanese house to use as their office. They chose the affluent Kamakura area, Kamata says, because of its policies to preserve its historic sites and natural environment, which resonate with what they see as the purpose of finance: to preserve society.

Since they started their fund in March 2010, performance has trailed slightly behind the market. But customers have more than doubled in the past four years, according to the company. Kamakura Investment Management Co. managed 34.9 billion yen ($325 million) in assets in more than 18,000 accounts as of March.

Kamakura is part of a growing movement in Japan toward sustainable and ESG -- environmental, social and governance -- investing. The country’s giant pension fund invested 3 percent of its then 35 trillion yen domestic stock portfolio into ESG indexes last year, and aims to increase that to 10 percent. Sustainable investments in Japan more than doubled to 137 trillion yen in the year ended March 2017, according to the Japan Sustainable Investment Forum.

Kamakura is also part of a group of independent asset managers that reject traditional industry practices. They sell their funds directly to customers rather than using brokerages as intermediaries, charge lower management fees, and seek to keep investors in one product for the long term, rather than churning them from one fund to another to generate transaction fees. They’ve found a friend in the Japanese government, which is trying to get the public to move 961 trillion yen from deposit accounts that pay almost no interest into the stock market.

Kamata, 53, and his three fellow founders seek to connect quality Japanese companies, built to last as long as Kamakura’s headquarters, with people who are investing for the long haul.

The managers have more than 60 stocks in their fund, which is called Yui -- meaning connections -- 2101, the year chosen to indicate longevity. They select them not using quantitative screening, even though most of them have quants backgrounds. Instead, they choose a theme, such as disability hiring, and then get out into the field to interview companies and experts. Only later, when it comes to managing the portfolio, do they deploy their quants backgrounds.

Kamata says the fund is guided by three broad principles: pick companies that look after their staff, that help to create a sustainable society, and that are masters of a niche.

Take FP Corp., which makes recyclable food containers. Listed on the Tokyo Stock Exchange, the company appeals not only because of its efforts to protect the environment, but also because of its push to hire workers with disabilities: 14 percent of employees are disabled, and of those, 73 percent are severely disabled.

You can’t choose companies just by screening or other conventional methods, says Kazuhiro Arai, executive director and co-founder of Kamakura, who also worked at Barclays. Arai, who visited FP’s workplace, was surprised by how motivated its management were. “What can you really understand by looking at analyst reports?” he says. "You can’t see everything through numbers. There are things you have to see for yourself."

Web-based software maker Cybozu Inc. is another pick -- for how it treats its staff. Founder Yoshihisa Aono, a passionate advocate for paternity leave and flexible working hours, has even brought a suit against the government over laws that require married men and women to take the same surname.

FP rose as much as 1.1 percent in early Tokyo trading Friday, while Cybozu gained as much as 1.3 percent.

Like Kamata, his colleague Arai was disillusioned with finance. A stress-induced illness made him leave the industry before the financial crisis. He only returned when Kamata persuaded him to join his new fund, an offer he turned down at first. “I was actually thinking of becoming a ski instructor," Arai says.

"I was a quant guy through and through," says Arai, 49, recalling his previous positions at Sumitomo Mitsui Trust Holdings Inc. and then Barclays, where he worked predominantly with pension funds. The idea of an independent asset manager, like Kamakura, was new to him. "When I was at Barclays, I thought individual investors” didn’t understand investment products, he says. “All they cared about was the fees.”

By selling directly to customers, Kamakura is able to explain more to them about the fund’s investment philosophy, Arai says. That includes, for example, why the Yui 2101 fund has kept about 25 percent to 45 percent of its assets in cash: to reduce volatility compared with the benchmark Topix index.

Kamakura’s fund has a total return of 101 percent since inception in March 2010, versus a 114 percent return for the Topix. But this year, when Japanese stocks have been falling, the fund has returned 0.7 percent, beating 96 percent of peers, according to data compiled by Bloomberg.

Kamata says the fund has a longer timeframe than peers. He named it Yui 2101, he says, in the hope that it would last until then. So far, it’s survived close to a decade -- still far short of the old Japanese home.